Taxes are the most sought-after topic young adults wish to understand because it is a huge part of everyday life. When people hear the word ‘taxes’, feelings of confusion, annoyance, and frustration are evoked. Some even think, “I earned the money, why is it being taken from me?” Taxes are paid when you purchase items and earn a paycheck. Taxes are also paid on four main categories: purchases, property, wealth, and earnings.
Taxes on purchases are also known as a sales tax. Formally, it is known as an excise tax, which is enacted on goods and services such as gas, cigarettes, hotels, and airfare. To reduce the financial burden on households with low income, many states have exempted sales tax from food and drugs.
Taxes on property, or real estate property tax, is based on the value of land and buildings. Over the years, property tax has increased drastically. Property tax is also a big source of revenue for local governments.
When a person passes away, a tax is imposed on the value of their property called an estate tax. The taxed property could include investments, property such as land and buildings, and bank accounts. Often times, there is an heir that inherits the property. In this case, the property is subjected to an inheritance tax, which is paid to acquire the property.
I’m sure that you look at your paycheck and wonder where a big chunk of your pay has gone to. There are two main taxes on wages: Social Security and income taxes. Social Security funds people aged 62 and up, survivors, disability, and Medicare. Income taxes include federal, state, and local income taxes.
There is a lot of planning involved when it comes to taxes, which is why it is important to fully understand the various kinds of taxes you pay.